Sleighing the Market: 3 Holiday Stock Winners

Key Points

• E-commerce, home goods, and flexible payments are among the hottest trends to watch this holiday season and into 2025.
• Three innovative companies are reshaping the retail environment and capturing holiday spending.
• The New Year continues to look bright for disruptors who are transforming the retail experience.

The 2024 holiday season is projected to witness a 3% surge in consumer discretionary spending, igniting a crucial period for the retail sector and the stock market. As shoppers gear up for festive celebrations and gift-giving, investors are eyeing opportunities to capitalize on this surge in consumer enthusiasm. This holiday season, the battleground isn't just in brick-and-mortar stores because the e-commerce sector is expected to perform stronger than ever before, commanding a record-breaking 40% of total sales. 

Well-informed investors are looking beyond traditional retail giants and turning their attention to companies strategically positioned to thrive in this mixed terrain. Three companies each offer a unique approach to capturing holiday spending that could potentially deliver strong investor returns. From powering online stores to curating home goods experiences and facilitating flexible payments, these companies are not just riding the holiday trend; they are reshaping it.

Consumer Spending and the Holiday Season

The 2024 holiday shopping season arrives within a complex economic backdrop. Economists have forecasted a 3% year-over-year increase in consumer discretionary spending, signaling healthy underlying demand. While the current economic situation is favorable, ongoing inflation and the Federal Reserve's uncertainty about the impact of interest rate adjustments are causes for concern.

While current expectations suggest interest rates will remain high throughout the holiday season, potentially dampening big-ticket purchases, a healthy job market and rising wages could offset some of this impact, providing consumers with more disposable income. Supply chains, though currently stable, remain susceptible to global uncertainties and require close monitoring. These factors combined create a dynamic environment for retailers, where omnichannel strategies and adaptability will be key to successfully navigating the holiday rush.

Shopify: Powering the E-commerce Holiday Surge

Shopify NYSE: SHOP is one of the most dominant e-commerce platforms on the market, equipping businesses of all sizes to establish and scale their online presence. The holiday season is Shopify's prime time, with merchants leaning heavily on its platform to manage the surge in online shopping and maximize sales. Shopify empowers its merchants with tools for marketing, promotions, and order fulfillment, crucial for navigating the complexities of peak season demand. 

Shopify’s earnings report for the third quarter of fiscal year 2024 (Q3 FY2024) underscored this strength, boasting a 26% year-over-year revenue increase (excluding logistics) and a robust 19% free cash flow margin. Shopify processed nearly $70 billion in Gross Merchandise Volume (GMV) in Q3, and Monthly Recurring Revenue (MRR) climbed to $175 million, signaling sustained momentum going into the holiday season. 

While competition from other e-commerce platforms and the risk of merchant churn persist, Shopify's established market position, comprehensive suite of tools, and expanding network of merchants create opportunities for holiday gains. Furthermore, Shopify’s commitment to innovation positions it to address future challenges and capture a growing share of the e-commerce market.

Williams-Sonoma's Strategic Advantage

Williams-Sonoma NYSE: WSM occupies a unique position in the home goods market, curating a portfolio of premium brands that resonate with discerning consumers. The holiday season is a key sales driver for Williams-Sonoma, as shoppers seek high-quality home décor, gifts, and entertaining essentials.

The company's consistent pricing strategy, aimed at maintaining a high-end brand image, contributes to strong profit margins. Williams-Sonoma's vertically integrated structure and optimized supply chain enhance operational efficiency, and its commitment to omnichannel retail provides a seamless experience for customers both online and in physical stores. 

Williams Sonoma’s earnings report for the third quarter of fiscal year 2024 (Q3 FY2024) demonstrated the effectiveness of these strategies. Williams-Sonoma achieved a 17.8% operating margin, exceeding expectations, while diluted earnings per share (EPS) grew by 7.1% to $1.96. Operating cash flow remained robust at $254 million, supporting the company's financial footing. 

While competition from other premium home goods retailers and potential supply chain disruptions are ongoing considerations, Williams-Sonoma's strategic positioning, strong brand portfolio, and historical holiday performance suggest it is well-positioned for continued success in the 2024 holiday season and beyond. The $1 billion stock repurchase program further bolsters its financial outlook.

Affirm: Flexible Payments Fueling Holiday Sales

Affirm Holdings, Inc. NASDAQ: AFRM is a sector leader in the Buy Now, Pay Later (BNPL) space, and the company stands to gain significantly from the anticipated holiday spending surge. Affirm offers consumers the ability to split purchases into smaller, more manageable payments, including 0% APR financing options for select purchases, making it a compelling alternative to traditional credit cards during the financially demanding holiday season.

Affirm's strategic partnerships with major retailers, announced in early December, further amplify its holiday prospects. New collaborations with prominent brands, along with a network that has expanded by over 20% year-over-year, position Affirm to capture a significant share of holiday purchases. The company highlighted a 40%-50% year-over-year increase in BNPL transactions in electronics and travel during the Black Friday/Cyber Monday weekend, underscoring the increasing appeal of flexible payment options for holiday shoppers.

While regulatory scrutiny of the BNPL sector and competition from traditional financial institutions are valid concerns, Affirm's strong growth and strategic partnerships place it in a favorable position for continued holiday season success. 

Investing in the Holiday Spirit

A comparative analysis reveals distinct opportunities for retail-focused investors. Shopify leads in revenue growth (26% YoY in Q3 2024), capitalizing on the e-commerce surge. Williams-Sonoma, with its established brand portfolio and consistent profitability (17.8% operating margin in Q3 2024), offers stability. Affirm, while presenting higher risk, boasts rapid growth within the expanding BNPL sector (35% GMV growth in Q1 2025).

Broader market risks, such as a potential economic downturn or shifts in consumer behavior, could impact the entire retail sector. However, the current economic indicators remain primarily optimistic.

The 2024 holiday season is poised to be a catalyst for growth in retail. Shopify, Williams-Sonoma, and Affirm cater to distinct consumer segments, each presenting compelling investment opportunities. Thorough due diligence and a long-term investment horizon are recommended. While challenges exist, these companies' innovative strategies and adaptability position them for continued success beyond the holiday season.